GST Composition Scheme

Table of Contents

The Composition Scheme is a simple and straightforward GST scheme for taxpayers. Small taxpayers can avoid time-consuming GST formalities by paying GST at a fixed turnover rate. This scheme is open to any taxpayer with a turnover of less than Rs. 1.5 crore.ย 

The Composition Scheme is available to taxpayers with a turnover of less than Rs 1.5 crore. The limit for North-Eastern states and Himachal Pradesh is now Rs 75 lakh. According to the CGST (Amendment) Act of 2018, a composition dealer may also provide services up to ten percent of turnover or Rs.5 lakhs, whichever is greater. This change will take effect on February 1st, 2019. Furthermore, at its 32nd meeting, the GST Council proposed raising this limit for service providers on January 10, 2019. To calculate turnover, take into account the total revenue of all businesses registered under the same PAN.


Who canโ€™t use the Composition Scheme?

The scheme is not available to the following people:

  1. Ice cream, pan masala, or tobacco manufacturer
  2. A person who makes interstate supplies
  3. A non-resident taxable person or a casual taxable person
  4. Businesses that sell goods via an e-commerce platform.

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How to choose composition scheme?

To use the composition scheme, a taxpayer must submit a GST CMP-02 form to the government. By logging into the GST Portal, you can do this online. A dealer who wishes to participate in the Composition Scheme must provide this notification at the start of each fiscal year.


Eligibility requirements

To choose a composition scheme, the following conditions must be met:

  • A dealer who chooses the composition scheme cannot claim an Input Tax Credit.
  • The dealer cannot sell goods that are not subject to GST, such as alcohol.
  • For transactions involving the Reverse Charge Mechanism, the taxpayer must pay tax at regular rates.
  • If a taxable person operates multiple businesses (such as textiles, electronic accessories, groceries, and so on) under the same PAN, they must register all of them under the scheme collectively or opt-out of it.
  • Every notice or signboard displayed prominently at the taxpayerโ€™s place of business must include the words โ€œcomposition taxable person.โ€
  • Every bill of supply issued by the taxpayer must include the words โ€œcomposition taxable person.โ€
  • According to the CGST (Amendment) Act of 2018, a manufacturer or trader can now also supply services up to 10% of turnover or Rs.5 lakhs, whichever is greater. This change will take effect on February 1st, 2019.


Benefits of the Composition Scheme

The benefits of registering under the composition scheme are as follows:

  • Compliance is lower (returns, maintaining books of record, issuance of invoices).
  • Tax liability is limited.
  • Because taxes are lower, there is more liquidity.


Drawbacks of the Composition Scheme

Let us now look at the drawbacks of registering under the GST composition scheme:

  • A small business territory. The dealer is not permitted to conduct interstate transactions.
  • Composition dealers are not eligible for the Input Tax Credit.
  • The taxpayer will not be able to supply non-taxable goods such as alcohol or goods via an e-commerce portal under GST.

Suggestion

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